Bitcoin Prices Stabilize in Respite to Weeks of Bad News

Bitcoin appears to be stabilizing over the past few days. As it trades into an ever tighter range of higher lows and lower highs, it looks for some respite to the couple of weeks of hugely negative press and resulting turmoil on the exchanges, which included the arrest of BitInstant CEO Shrem for money laundering, a software bug open to exploit by hackers in certain rare transactions, i.e. malleability of transactions once sent, and the ~20% drop last Monday topping off the carnage. A large part of this latest crash has been the pinnacle of bad news in an ongoing controversy involving the safety of funds held at Mt.Gox, as it has now shut down entirely, albeit temporarily, it claims.

Traders have been concerned with a shortfall of U.S. dollars since roughly $5 million in Mt. Gox funds were seized by the U.S. DHS many months ago. That action caused an increase in prices relative to other exchanges, which appears to be a kind of bitcoin price gauging brought on by the uncertainty, but it’s now devolved into a new low of customer anger at the exchange. With nearly 1,500 people responding to the withdrawal question, 68% of those Mt. Gox customers said they were still waiting on withdrawn funds, according to a Feb. 4 poll on Coindesk.

The temporary shutdown has been spun by Mt. Gox in typical fashion as a technical issue in this piece in the Wall Street Journal. However, it’s purely a matter of speculation that this move really relates to a worsening financial situation. Mt. Gox’s founder Mark Karpeles has been very tight-lipped about it.

The most telling proof of the loss of confidence from Mt. Gox’s own customers, however, is the crash of prices on the Mt.Gox exchange before the temporary shutdown. On bitcoincharts.com, the MtgoxUSD rate is quoted as $298 at the moment, having fallen an additional 44.748% from $539.308 on volume of huge volume of 668 thousand bitcoin. So it seems those who were waiting it out and betting on Mt. Gox’s solvency may be exiting en masse at huge losses, if the last traded prices are to be believed.

However, the price gouging which, whether intentional or not, would have increased the fees Mt. Gox collected in the ensuing months, most likely has continued to be, and very likely may continue to be insufficient to meet all customer withdrawal requests, in my opinion, particularly if the customer exodus is not curtailed by some dramatic boost in confidence. Coindesk published an excellent analysis of Mt. Gox’s prospects for continued operation, suggesting it may indeed get off this slow train in bankruptcy.

While more exchanges have been entering to pick up these traders, investors, and bitcoin aficionados, due diligence is ever more critical to weed out the fly-by-night companies and those likely to be hacked, either from the inside or out, as the new Silkroad debacle illustrates. In fact, the story continues a long line of the more shady bitcoin venues running off with—ostensibly losing— customers’ bitcoin funds.

In positive news, much of which has been overshadowed the past few weeks by the negatives above, many more outlets continue apace at accepting bitcoin. It’s notable that Wedbush Securities has signed up to accept bitcoin through Coinbase, if only for research, because as Wall Street has long been fascinating with the new technology, it has been slow to integrate it. The press release provides much of the rationale for Wall Street’s interest in bitcoin:

Wedbush has proven to be a key voice within the financial services industry covering the evolving cryptocurrency space, having published a handful of reports including “Bitcoin: Intrinsic Value as Conduit for Disruptive Payment Network Technology” (December 1, 2013) and “Digitizing Trust: Leveraging the Bitcoin Protocol Beyond the Coin” (January 2, 2014). With today’s release of “Watch the Innovation, Not the Price”, Wedbush customers – appropriately – can purchase these reports with bitcoin.

In another of the relatively fewer positives for bitcoin this past week, MIT researchers found the bitcoin hoarding myth is indeed a myth, as most bitcoin are spent quite freely, usually within 24 hours. And, just days after a gloom-and-doom piece on bitcoin’s crash, Fortune magazine swung 180 degrees to the other extreme, wondering if $50,000 bitcoin were possible. Such back-and-forth has been the norm with bitcoin rather than the exception, and in my opinion, simply illustrates that this new technology has much more room to go in entering the public consciousness, rather than being the end to a fad, as naysayers predict.